Using the guidance discussed in class as well as materials within the textbook, consider the following 2 scenarios and respond to the questions noted (total of 7 questions).
Scenario 1: Trial Balance
Vanessa Jones is the assistant chief accountant at IBT Company, a manufacturer of computer chips and cellular phones. The company presently has total sales of $20 million. It is the end of the first quarter and Vanessa is hurriedly trying to prepare a trial balance so that quarterly financial statements can be prepared and released to management and the regulatory agencies. The total credits on the trial balance exceed the debits by $1,000.
In order to meet the 4 p.m. deadline, Vanessa decides to force the debits and credits into balance by adding the amount of the difference to the Equipment account. She chose Equipment because it is one of the larger account balances; percentage-wise, it will be the least misstated. Vanessa plugs the difference! She believes that the difference is quite small and will not affect anyone’s decisions. She wishes that she had another few days to find the error but realizes that the financial statements are already late.
- List three stakeholders (companies or people harmed or benefited) in this situation.
- What ethical issues are involved (what is the dilemma)?
- What are Vanessa’s alternatives?List at least three alternatives that she has.What are the benefits and weaknesses of each alternative, including ethical traps, if any, that might be relevant to each alternative?
Scenario 2: GE’s Accounting
The July 28, 2007, issue of the Wall Street Journal includes an article by Kathryn Kranhold entitled “GE’s Accounting Draws Fresh Focus on News of Improper Sales Bookings.” The article is attached to this Assignment in Isidore.
Read the article and answer the following questions.
4. What improper activity did the employees at GE engage in?
5. Why might the employees have engaged in this activity? What ethical traps may they have fallen into?
6. What were the implications for the employees who engaged in this activity?
7. What does it mean to “restate” financial results? Why didn’t GE restate its results to correct for the improperly reported locomotive sales?